An interesting interview with George Osborne on the Today programme this morning (7.51am). He argued that beyond allowing the automatic stabilisers to operate and bringing forward capital spending within existing limits, there should not be a big Keynesian spending splurge. Absolutely right.
He also said that there should be some targeted tax relief – a council tax freeze and reductions in payroll tax for small companies. Again absolutely right.
Although it was welcome to hear the Shadow Chancellor say that tax rises in a recession would be absolutely crazy (and to warn that tax rises on small companies and family cars are still planned for next year), more worrying is the constant refrain from the Tories about tax rises to come (presumably after the recession is over). If the Government are spending too much (which they are), then surely it would be best to reduce spending after a recession, not raise taxes. We shouldn’t be hitting taxpayers as soon as the recession is over.
The counter-argument may be that the deficit will be so huge that both spending cuts and tax rises will be needed. That’s not an argument taxpayers should buy. If spending is too high, there’s only one solution – reduce it. If the Tories get into power and raise taxes, voters will not thank them for it.